Your CPA's Role in Harmonizing Blended Family Finances
Merging lives also means merging money—and that’s where things can get tricky. If you and your spouse are navigating the financial complexities of a blended family, you’re likely juggling everything from separate 529 plans to different retirement goals. But there’s one often-overlooked relationship that can make a big difference in your financial clarity: your CPA.
Your CPA can be a valuable advisor, offering insights and guidance on tax matters essential to your financial well-being.
Open communication is key to making the most of this relationship. Whether you're exploring tax strategies, understanding the tax implications of investment opportunities, planning for retirement, or making business decisions, your CPA can work closely with your financial advisor to help you make well-informed financial choices.
Here are some important questions to consider discussing with your CPA before the end of the year.
1. What are the pros and cons of filing separately vs. jointly?
Filing jointly often results in tax savings, but it’s not always the best option, especially for blended families. If you and your spouse manage finances separately due to different financial obligations, such as child support or alimony, filing separately may better align with your situation.
A qualified CPA can help you assess both approaches based on your income, liabilities, and family dynamics. Their guidance ensures you choose the filing method that supports your overall financial strategy and complies with any legal or financial mandates specific to your family.
2. What tax deductions, credits, or dependent claims should we consider?
Every year, your eligibility for tax deductions and credits can shift based on your income, family structure, and changes in tax laws. For blended families, the landscape is even more complex, especially when managing shared custody, multiple dependents, or varying income sources between spouses. Common considerations include child tax credits, education deductions, healthcare premiums, and support payments.
Your CPA plays a critical role in identifying applicable deductions and credits, factoring in investments, income streams, and significant life events. They can help you spot tax-saving opportunities you might otherwise overlook, especially in your first year as a newly blended household.
Claiming dependents is another key area that requires thoughtful planning, particularly if children from previous relationships are involved. Sometimes legal agreements dictate who claims which child, and in other cases, strategic decisions can optimize your tax benefits. The IRS has specific rules for claiming children of divorced or separated parents, which your CPA can help navigate.
Additionally, certain credits, like education credits, come with income limits and dependency requirements that can affect your eligibility. Collaborate with your CPA well before tax season to map out a claiming strategy. This may involve coordinating with an ex-spouse to ensure compliance and maximize benefits. By planning ahead, you’ll avoid last-minute surprises and position your family for the best possible tax outcome.
3. How do changes in tax laws, my finances, or my family affect my estate plan?
Keeping your CPA informed about your estate plan ensures it stays aligned with both your family’s evolving circumstances and the latest tax laws. Estate planning is closely tied to your financial situation, which can shift with life events such as marriage, divorce, the birth of children, or changes in income, assets, or business ownership. For blended families in particular, it’s important to revisit how you and your spouse intend to divide your estates. Will you split assets evenly, or structure inheritances differently based on individual wishes or existing children?
At the same time, tax laws governing estates, inheritances, and wealth transfers can change significantly over time. Your CPA can help you stay ahead of these shifts by identifying how updates in the tax code may impact your plan, and by providing strategies to minimize tax liabilities while preserving your legacy.
With their guidance, you can ensure your estate plan remains tax-efficient, legally sound, and reflective of your family’s shared vision for the future.
4. How should we title and report our businesses and investments?
If you or your spouse owns a business, rental properties, or significant investments, it’s essential to carefully consider how those assets are titled and reported. Much of this decision depends on how fully you’re merging your finances, but consulting a CPA before making any changes is key to avoiding unintended tax consequences or legal complications.
You’ll also want to consider whether any assets are earmarked for specific heirs. If so, titling them appropriately can help ensure a smooth and intentional transfer when the time comes. This is an area where collaboration between your CPA, financial advisor, and attorney can be invaluable—each brings a critical perspective to help align your ownership structure with your financial and estate planning goals.
Another important discussion is whether to keep certain assets separate or merge some or all of them as part of your shared financial life. A CPA can provide guidance on ownership structuring, help you track your basis in each asset, and assist in preparing for efficient gifting or inheritance strategies. Having a clear plan in place not only simplifies tax reporting but also helps preserve family harmony and ensures your assets are managed in line with your shared vision for the future.
5. Are there any changes to health insurance premiums or deductions that could affect my tax situation?
Keeping up with changes to health insurance premiums and deductions can be challenging, especially considering their impact on your tax liabilities and financial planning. Your CPA stays informed on healthcare laws and regulations, including how they relate to changes to premiums and deductions, so they can help you understand any potential tax implications.
Being aware of changes to healthcare policies helps you plan effectively. For instance, updates in healthcare laws or changes in your coverage status can influence the deductibility of your health insurance premiums. Your CPA can provide guidance on eligible deductions based on your circumstances, such as employment status, types of coverage, and medical expenses.
Additionally, they can recommend strategies to optimize your deductions, such as using Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), to ensure you make the most of available tax benefits.
6. How can I maximize tax deductions for my business or self-employment income?
Maximizing deductions and optimizing your self-employment income for tax benefits can be complex, but your CPA has the expertise in tax laws and regulations specific to businesses to help you identify deductible expenses you might overlook and advise on effective strategies.
Understanding the nuances of deductible expenses, depreciation, and business credits can significantly impact your tax liability. Your CPA can guide you on structuring transactions and managing finances to maximize tax deductions effectively. They can also assist with navigating complex areas like home office deductions, retirement contributions, and health insurance premiums.
Effective financial management and compliance with tax laws are crucial for your business’s success and sustainability. Building a strong relationship with your CPA ensures you have a trusted advisor to turn to with questions, helping you make informed decisions and optimize your financial strategy.
Partnering with Your CPA
Engaging with your CPA and staying informed about key financial questions is essential for sound financial planning. This becomes increasingly important as you bring two households together, combining some aspects of your finances while deciding whether other components should remain separate. As your family’s status changes, your opportunities for potential tax savings can change as well.
At Endurance Financial Group, we value the expertise that CPAs bring to the financial planning process. We encourage you to have regular conversations with your CPA, ask informed questions, and understand the tax implications of your financial decisions. Collaboration between your CPA and our team can ensure that we're taking the best course of action for your and your family’s financial well-being.
Based in St. Paul, MN, Endurance Financial Group is an Independent Registered Investment Advisor partnering with blended families to combine their household finances in a unified financial plan that works for all members of the family. They can be reached by phone at 651-605-2318 or online at efg-planning.com.
This material has been prepared in collaboration with Crystal Marketing Solutions, LLC, and has been edited with the assistance of artificial intelligence tools. The information presented is based on sources believed to be reliable and accurate at the time of publication. This material is for educational purposes only and does not necessarily reflect the views of the author, presenter, or affiliated organizations. It should not be construed as investment, tax, legal, or other professional advice. Always consult a qualified professional regarding your specific situation before making any decisions.
